Supreme Court Rebukes Crony Capitalism

The following first appeared in City Journal California.

JAN. 6, 2012


On December 29, 2011, the California Supreme Court handed down what the state’s urban redevelopment agencies (RDAs) and their supporters called a “worst of all worlds” ruling—first upholding a law that eliminates the agencies, then striking down a second law that would have allowed them to buy their way back into power. This was great news for critics who had spent years calling attention to the ways modern urban-renewal projects distorted city land-use decisions, abused eminent-domain policies, and diverted about 12 percent of the state budget from traditional public services to subsidies for developers, who would build tax-producing shopping centers and other projects sought by city bureaucrats. As of now, the agencies are history, though the redevelopment industry is working to craft new legislation that would resurrect them in some limited form.

California’s redevelopment agencies were first introduced in the 1940s to combat blighted urban areas by providing a tax-sequestering mechanism so that cities could concentrate investment in struggling areas. But after Proposition 13 placed limits on local property taxes and various ballot initiatives further constrained the way state and local governments could spend their revenues, redevelopment mutated into a tool for tax-hungry cities to capture dollars that would otherwise go to counties and the state. Restoring decrepit areas took a back seat to grabbing revenue. The RDAs loved to oversee the construction of shopping centers and auto malls, for example, because those projects generally filled city coffers with sales taxes.

No Money

As California faced a protracted structural budget deficit, however, there were fewer and fewer pots of money for officials to plunder. Though operated by cities, RDAs are actually state agencies. In 2009, Governor Arnold Schwarzenegger tried to “raid” redevelopment funds, but the powerful League of California Cities and the California Redevelopment Association (CRA) struck back in 2010 with Proposition 22. This ballot initiative, sold to voters as a means to keep Sacramento politicians away from local transportation budgets, forbade the state from taking RDA funds. After its passage, the measure’s advocates viewed redevelopment funds as sacrosanct.

In fact, Proposition 22 planted the seeds of redevelopment’s demise. Since the agencies’ money was now off limits, new Gov. Jerry Brown decided simply to shut them down. Yet as a sop to the legislature’s many redevelopment supporters—especially in the Democratic Party—the governor also signed another bill that let the agencies stay in existence by paying what the League and the CRA called “ransom.” Redevelopment critics were happy when the governor signed the first bill, but dismayed when the second enabled many of the biggest and most abusive agencies to remain alive by spending tax dollars.

Redevelopment officials, for their part, weren’t happy with any funding loss and filed a lawsuit challenging both laws. This was a controversial strategy—and proved a devastating mistake. “We’re very gratified that the California Supreme Court has agreed to take our case, issued the stay we requested to preserve the status quo, and that it is moving forward on an expedited basis,” the League of California Cities’ executive director, Chris McKenzie, wrote in August. But McKenzie failed to see the strategy’s perils, which other redevelopment boosters, such as state Senator Bob Huff, R-Diamond Bar, had warned about.

‘Proper Exercise’

The court ruled 7–0 on the first bill that ending the agencies was “a proper exercise of the legislative power vested in the Legislature by the state Constitution. That power includes the authority to create entities, such as redevelopment agencies, to carry out the state’s ends and the corollary power to dissolve those same entities when the Legislature deems it necessary and proper.” Then the court ruled 6–1 that the second measure was unconstitutional: “A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency’s community sponsors to state funds benefiting schools and special districts. Proposition 22 . . . expressly forbids the Legislature from requiring such payments.” For critics of the RDAs, using Prop. 22 to deliver redevelopment’s final blow was the sweetest part of the ruling.

The redevelopment agencies are fighting to return, but unlike last year, when most Republicans opposed the effort to dissolve the agencies, 2012 may see a minority party doing the right thing. A number of assembly Republicans who refused to support Brown’s anti-RDA legislation claimed that they did so because the package of bills would just resuscitate the RDAs. Well, the state supreme court has now killed that argument. Will Republicans side with property rights and limited government at the local level, or again stand up for these misguided and destructive bureaucratic bodies?


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  1. Beelzebub
    Beelzebub 6 January, 2012, 09:45

    So now the $1.7B is diverted to the cops and teachers. So you took the money away from Dracula and handed it to Frankenstein. Another solid victory.

    Reply this comment
  2. Steven Greenhut
    Steven Greenhut 6 January, 2012, 10:23

    The state will blow through that 1.7b, but killing the agencies will help end abusive practices at the local level.

    Reply this comment
  3. Pat
    Pat 8 January, 2012, 13:03

    If RDA’s have been abolished, what is the role of the Successor Agency? Especially, if the RDA was the City Council and the Successor Agency is also the City Council?
    The City of Highland has a meeting on January 10, 2012 (Tuesday night); the agenda states:
    Designation of the City Council of the City of Highland as the Successor Agency to the City of Highland Redevelopment Agency, per the provisions of AB X1 26.

    The fiscal impact says that this will provide staff time to support the Successor and related Oversight Agencies…

    What does this mean? Does the Council still preserve some of its RDA powers?

    The Council has prevented us from developing our property, has changed the zoning without public notice, changed the zoning from medium density to low density after a three year general plan to make the property medium density.
    We were in escrow to sell our property based on the general plan and then found out that they changed the zoning.
    Our suspicion has been that the City has wanted to take our property, not blighted but designated “redevelopment”.

    Also, does the City have to sell their city redevelopment purchased properties in order to pay their existing debt?
    If there is any information available I would appreciate.

    Thank you.
    I have really appreciated all your efforts and articles on this subject.

    Reply this comment
  4. Pat
    Pat 8 January, 2012, 20:01

    I wrote the last entry — I just listened to a panel discussion with various authorities on redevelopment. Some of my questions regarding successor agencies were answered.

    I guess my concern is that the successor agency will act just as unethically as they did as the RDA.

    Thanks again for the information, both on RDA’s and the out of control pensions.


    Reply this comment
  5. Brian Hews, Publisher Los Cerritos Community Newspaper
    Brian Hews, Publisher Los Cerritos Community Newspaper 9 January, 2012, 17:18

    Comment from city/government officials:

    Jim Kennedy, Interim Executive Director for the California Redevelopment Association told LCCN on Wednesday that cities across California are “extremely disappointed” in court ruling and that it is a “new paradigm shift in the way of thinking who cities can legally operate when it comes to development for the future.”
    “These are uncharted waters that cities are going to enter into,” Kennedy said. “This court ruling has made cities change from one way of thinking to another overnight. Redevelopment will no longer exist as we have known it here in California,” Kennedy said in a phone interview from his Sacramento office.
    Kennedy said he didn’t know the “specific setting” for Cerritos and other cities in Southeast Los Angeles County, and said that a lawsuit filed by Cerritos, Lakewood and others seeking to test the “constitutionality” of the new law “could take years” to wind through the legal process.
    “This is a worst case scenario that we now have to deal with,” Kennedy said. So far, he said cities around California have contributed as much as $600,000 in legal costs, but would not disclose an exact dollar amount to LCCN. He said the California Redevelopment Association is a “private trade association” and “does not have to publicly disclose” financial matters.
    Norwalk City Manager Mike Egan said on Wednesday afternoon that “Legislators expressed repeatedly that it was not their intention to abolish redevelopment; they simply wanted revenue to offset the persistent deficit in their own budget. The Supreme Court ruling not only abolishes redevelopment, it still does not provide the monies the State hoped for. The residents of
    Norwalk has clearly benefitted from a number of first-rate redevelopment projects over the last few decades. These improvements have been crucial for our residents, businesses, the City and the School Districts. Without redevelopment tools, progress will come to a screeching halt, and do great harm to the community. We need to work with the legislature to achieve what they said was their intention.”
    CITY of La PALMA
    Dominick Lazzaretto, City Manager for the City of La Palma said his city will have “significant and lasting effects” due to the ruling. “Prior to this law being enacted, we had been in discussions with developers for the rehabilitation of two shopping centers, the development of a new hotel, and the creation of a new affordable housing program. Now, those efforts are likely to be abandoned. We could have played an important role in jobs creation and economic recovery, but we are left with sitting back and hoping something materializes on those challenged sites someday,” said Lazzaretto.
    In Pico Rivera, city finance director Michael Matsumoto said that “the Supreme Court held that the State has the right to dissolve all redevelopment agencies, but the State could not exact payment for their survival.” He went on to say that several dates were modified and further analysis will be done regarding the details of dissolving redevelopment agencies. Pico Rivera officials plan to discuss the issue publicly during their city council meeting on January 10.
    Bellflower Mayor Scott Larsen told LCCN that “I’m disappointed, but not surprised by the Supreme Court decision. Although I don’t doubt the individual commitment of the several members of the State Legislature who have said they would support reconstituting redevelopment in some form should the Supreme Court decide as it did, it is unknown if or when this might take place.”
    “The long term effect of the Supreme Court’s decision is not yet known, it will damage Bellflower’s ability to promote economic development, create new jobs, and improve our community,” Larsen said.
    He also said that the City’s $7 million Belmont Court mixed-use project will not be affected because no redevelopment money is being used.
    La Mirada city officials also reacted by saying “killing this powerful job-creating tool, State officials have made it more difficult than ever for local governments to stimulate new investment, create jobs, and grow local economies.”
    “A provision that would have allowed redevelopment agencies to continue in existence if they agreed to pay money to the State was also struck down by the Supreme Court.”
    “Local officials had sought to preserve redevelopment agencies, which have been responsible for some of California’s most impressive economic gains for nearly 60 years. The full impact of the Court’s decisions is still being determined, but redevelopment as it existed is gone. Redevelopment agencies used a portion of the property taxes coming from improvements within their boundaries to stimulate additional private investment, new development and job creation in the area. These funds were also used for public improvements such as streets, sewers and other needed facilities.”
    La Mirada officials also pointed to “many local examples highlighting where redevelopment has improved blighted neighborhoods, cleaned up contaminated properties, built affordable housing, created jobs and stimulated economic activity that wouldn’t have happened without redevelopment.”
    “The La Mirada Redevelopment Agency is proud of a number of projects completed over its nearly 40 year history including:
    An obsolete 70-acre Outlet Mall was converted into a modern, 34-acre commercial development and a 36-acre residential project. The project has 300,000 square feet of commercial space and 237 single family homes.
    An 82-acre industrial park includes eight buildings totaling 1.5 million square feet. Major businesses include US Foodservice, Shaw Carpet, Xpedx, Bralco Metals and Beaulieu of America. Jobs, sales tax and property tax increment revenue flowed from the Agency’s efforts.
    A blighted commercial center became a productive neighborhood shopping center. The center, anchored by Stein Mart, Fresh ‘N Easy, and CVS Pharmacy, also includes 50,000 square feet of in-line shops.
    Gateway Center Plaza features modern office, retail and commercial uses. This 20-acre mixed-use project has a 300-room Holiday Inn hotel, two office buildings, a light manufacturing/office building, restaurants and a 36,000 square foot Staples Superstore.
    Housing projects assisted by the Redevelopment Agency’s efforts in cooperation with private developers have produced some 600 quality affordable housing units in La Mirada.
    The La Mirada Redevelopment Agency will work to finish projects currently in process, as allowed by law. These include the current $9-million Foster Park Neighborhood Improvement and The Orchards 41-units housing development at the former Alondra North shopping center. These projects, like the numerous redevelopment efforts completed in La Mirada over the past 40 years, will provide a significant benefit for the La Mirada community.”
    The statement concluded with “Local officials are hopeful that State legislators will re-evaluate their earlier decision and restore local government’s ability to encourage economic growth and job creation.”
    Assemblyman TONY MENDOZA
    “I am disappointed that our cities have lost this valuable funding resource. Redevelopment agencies were a great tool to improve communities and their loss sets the stage for an uncertain future. I will work to find a way to help our communities through other means.”
    Communications Director Bob Jimenez for State Senator Calderon said the lawmaker “has chosen to refrain from comment, given the complexity of the issue and the diversity of cities affected.” Jimenez confirmed that Calderon “wants to study the issue further before making comment.”
    Assemblyman RICARDO LARA
    “I am greatly concerned and disheartened over the California Supreme Court ruling on redevelopment. Although I agree it is the State’s right to determine the future of the redevelopment program, which the State created, it is counterproductive to strike down the voluntary opt-in program.”
    “The legislative intent was always to fund successful economic and affordable housing development while scaling back some activities enough to help fund education and local government. For the Southeast Los Angeles communities, redevelopment has also proven to be one of the best ways to address blight and browns field cleanup.
    I am committed to work with our local cities, Assembly Speaker Perez and my legislative colleagues to address these issues in the most prudent manner.”
    St. Senator ALAN LOWENTHAL
    “The Supreme Court’s decision should come as no surprise to anyone who has been following the case. The question that now must be answered is, can the Legislature and Local Government work together to create a new agency that does not pit the need for local economic development against school children and public safety? I believe that if there is a will, there is away.”.

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